Santa Barbara County is anticipating a $9.6 million shortfall in cannabis tax revenue this year, facing a continued decline in wholesale cannabis prices and an oversupply of marijuana to the county.
Santa Barbara grows more weed than any county in the state, making up 22% of all active cannabis cultivation licenses issued by the California government.
Since Santa Barbara County imposed its cannabis operations tax in 2018, the program has generated over $50 million in government revenue since its inception.
This year, the county is projecting an estimated $7.5 million in cannabis tax revenue, down 54% from the year prior and sufficiently less than the $15.2 million projected in its adopted budget, according to a preliminary budget workshop document prepared by the county’s budget director.
“This revenue update is a wakeup call for changes,” Second District Supervisor Laura Capps said at the March 14 Board of Supervisors meeting. “We should take a look at how to do things better.”
In the first year of the program, the county generated $6.76 million in revenue, a number that rose to $12.18 million for the 2019-20 fiscal year and reached a high point of $15.75 million in tax revenue. Since then, the program experienced year-on-year declines in tax income.
According to County Executive Office Principal Cannabis Analyst Brittany Heaton, growers are simply producing too much weed. Marijuana production is outpacing possible levels of consumption, causing an oversupply and driving down prices.
“There’s a severe supply glut, so there’s just too much product in California and not enough outlet for it,” she said during a March 14 presentation to the board.
The price per pound has dropped by 35-40% on national average over the last fiscal year, she said in the presentation.
Heaton said the drop in revenue can partly be attributed to attrition amongst cannabis operators, with 12 operators dropping out of the program for various reasons, from capital issues to noncompliance with county regulations.
Still, the county is continuing to issue new cannabis cultivation licenses, issuing 14 in the second quarter of the fiscal year, reaching a total of 76 for the year.
“We anticipate that even with revenues being down to 5.7, that we’ll see an ending balance this fiscal year of 4.6 million dollars,” Heaton said.
Heaton said the county has also had to grapple with the unwavering presence of illegal cannabis operations.
“There’s also a continued evolution of the illegal market,” she said. “These folks that have been involved in the market on the illegal side haven’t gone away, and their methods for providing in the illegal market are evolving. We’re seeing more indoor grows that are harder to detect.”
The Santa Barbara Sheriff’s Office regulated illegal and noncompliant cannabis operators this year, completing five enforcement actions against illegal cannabis operations, confiscating 1,969 plants and 586 pounds of cannabis products. The confiscated goods have an estimated $1.6 million in street value of product, according to Heaton.
The county uses cannabis tax revenue to pay for certain non-cannabis ongoing and one-time expenditures. At the April 21 budget hearing, the county executive officer will recommend the Board of Supervisors to use general revenue fund growth to replace declining cannabis tax revenue.
A version of this article appeared on p. 3 of the April 20, 2023 print edition of the Daily Nexus.